U.S. Economy Grew By Just 1.2 Percent During 2nd Quarter

Claudia Caballero, a district manager for Aldi, talks with applicant Manoushka Metellus (right) at a job fair in Florida earlier this month. With a low unemployment rate, consumers are still spending but business inventories fell during the second quarter.

Lynne Sladky
/ AP

Originally published on July 29, 2016 7:27 am

The U.S. economy grew at an annual rate of just 1.2 percent during the second quarter of this year, well below expectations, and it came after an even weaker first quarter, the Commerce Department said.

The report exacerbates fears that factors such as the global slowdown and the decline in energy production might have hit the economy harder than first thought.

While all-important consumer spending rose by a healthy 4.2 percent, business investment fell by 9.7 percent and inventories fell. Government spending, which includes military expenditures, also dropped, by 0.9 percent.

The Commerce Department also released revised numbers showing that the economy expanded by 2.6 percent during 2015, the biggest increase in nearly a decade.

But the data indicates that growth began to slow at the end of the year and was lackluster during the first half of 2016. The economy grew at an annual rate of just 0.8 percent during the first three months of this year.

The good news is that, with the unemployment rate still relatively low, consumers continue to spend.

Still, businesses remain cautious about the future, suggesting that many are worried about the outlook abroad. Although exports actually rose during the second quarter, the stronger dollar could hurt U.S. manufacturers trying to sell products abroad.

As The Wall Street Journal reported, continued anemic growth is likely to be felt in several ways in the months to come:

"Lackluster growth could be a concern to Federal Reserve officials considering whether the economy is strong enough to absorb higher interest rates later this year. It could also influence voters weighing the economic track record during Barack Obama's administration before electing a new president in November."

The numbers released today represent the first estimate of growth for the quarter. The data is almost always revised as more information comes in.